Paxful Holdings Inc., an online platform for trading virtual currency, has agreed to plead guilty to three federal criminal charges in the Eastern District of California. The company will pay a $4 million criminal penalty, determined based on its ability to pay.
“Paxful made millions of dollars in part by knowingly moving cryptocurrency for the benefit of fraudsters, extortionists, money launderers and purveyors of prostitution,” said Acting Assistant Attorney General Matthew R. Galeotti of the Justice Department’s Criminal Division. “The defendant attracted its criminal clientele by promoting its lack of anti-money laundering controls and its deliberate decision not to identify its customers. This conviction shows that no matter the means, the Criminal Division will hold criminals accountable for knowingly engaging in illicit finance to further dangerous criminal activity.”
“Yesterday’s guilty plea by Paxful Holdings holds the company accountable for knowingly facilitating serious criminal conduct in the United States and elsewhere,” said U.S. Attorney Eric Grant for the Eastern District of California. “Through its calculated lack of controls, the company made itself available as a vehicle for money laundering, sanctions violations, and other criminal activity, including fraud, romance scams, extortion schemes, and prostitution. This resolution sends a clear message: those who deliberately turn a blind eye to criminal activity on their platforms will face serious consequences under U.S. law. The Department of Justice remains committed to protecting victims and ensuring that the financial system, including the cryptocurrency ecosystem, is not exploited.”
“For years, Paxful disregarded its Bank Secrecy Act obligations and facilitated transactions associated with illicit activity and high-risk jurisdictions, such as Iran and North Korea,” said Financial Crimes Enforcement Network (FinCEN) Director Andrea Gacki. “FinCEN is committed to mitigating risks to the U.S. financial system while fostering responsible innovation in the virtual asset ecosystem.”
“Paxful Holdings, Inc. knowingly enabled its platform to serve as a conduit for criminal activity — including fraud and illegal prostitution,” said Special Agent in Charge Linda Nguyen of IRS Criminal Investigation (IRS-CI) Oakland Field Office. “By willfully disregarding anti-money laundering laws and failing to report suspicious activity, Paxful profited in illicit trades while facilitating crimes with serious harm and consequences. IRS-CI remains steadfast in its mission to hold virtual currency platforms accountable when they are used to conceal and enable criminal conduct.”
Court documents show that from January 2017 through September 2019 Paxful operated an online peer-to-peer currency trading business where users could exchange virtual currencies with fiat money or gift cards without sufficient customer identification measures or proper anti-money laundering policies being enforced.
The company facilitated more than 26 million trades totaling nearly $3 billion during this period while collecting almost $30 million in revenue from these activities.
Paxful transferred virtual currency on behalf of clients including Backpage—an advertising site previously admitted by owners as being involved with illegal prostitution—including minors—and similar websites. Between December 2015 and December 2022 approximately $17 million worth of bitcoin was sent from Paxful wallets to Backpage or copycat sites; Paxful earned at least $2.7 million from these transfers.
According to prosecutors’ statements about court filings: between July 2015-June 2019 both Paxful itself and founders promoted it as requiring no know-your-customer checks; allowed account openings without verifying identities; presented fake anti-money-laundering policies externally but did not implement them internally; failed repeatedly despite knowledge about user engagement with crime schemes such as romance scams or extortion schemes.
Paxful has agreed it conspired both (1)Â to violate the Travel Act through promotion via interstate commerce involving illegal prostitution; (2)Â to operate an unlicensed money transmitting business by moving funds derived from crime; (3)Â and violated Bank Secrecy Act requirements regarding AML programs.
In reaching resolution authorities considered seriousness/nature—processing millions illegally—but also credited cooperation during investigation which included providing information/updates/remedial actions resulting ultimately in a reduced fine below sentencing guidelines ($112M), downscaled after review due inability-to-pay analysis found only $4M feasible.
Sentencing is scheduled for February 10th next year.
On July 8th last year co-founder Artur Schaback pleaded guilty relatedly over failures maintaining effective AML procedures within same scheme.
This plea deal forms part coordinated effort alongside FinCEN regulators while investigations were conducted jointly by ICE Homeland Security Investigations & IRS Criminal Investigation units.
Prosecution involves members from DOJ’s Money Laundering/Narcotics/Forfeiture Section Bank Integrity Unit plus local Assistant U.S Attorney Matthew Thuesen.
